FREE MTERIAL

[NAGULAVARAM NARSIMHAIAH]

Dear Sir,

Our's is manufacturing unit and also we do job work.Our clients wants to supply some inputs(raw-material) to us on free of cost without Excise Duty and VAT vide challan under excise rule 4(5) (a) which are to be used with our raw materials, but they do not want to charge ED on their free material supplied t us. I am telling that CED  is applicable on both our material and their material.  Could you please guide me the applicability of CED and VAT. I need your guidlines with rules or circulars.

Thanks & Regards.

[Dilip Darji]

Dear Sir.

As long as you are returning processed goods along with left out, if any, and tallying the quantity received by you under (4)(5)(a) challan with the quantity returned by you, there is no question of making payment of any Central Excise Duty by you. Under such circumstances, since your client has availed CENVAT Credit and removed the goods under (4)(5)(a), challan, it becomes their responsibility to pay duty on clearance goods from their factory.

As per sub-rule (i) of  Rule 10A of Valuation Rules, if the processed goods are sold by your client at your factory gate (job worker), you will have to pay CED on the transaction value at which your client is selling the processsed goods.

As per sub-rule (ii) of  Rule 10A of Valuation Rules, if the processed goods are not sold by your client at your factory gate (job worker), and transferred to another place, you will have to pay CED on the transaction value at which your client is selling the processed goods, from such another place,.

If the situation is not covered in (i) or (ii) above, you are required to pay central excise duty on the value of the goods removed by you, which includes cost of free material received by you. As per sub-rule 8 of Central Excise Valuation rules, if the goods are not sold by the manufacturer, CED is to be paid on 110 % of the Cost of production or cost of production. You need to obtain CAS-4 Certificate from Chartered Accountant for cost of of production or cost of manufacture.

AI Summary

Central excise duty on job-work supplies: liability depends on sale location and valuation; duty on transaction value or cost. Where free inputs are supplied to a job-worker under challan and processed goods are returned with quantities reconciled, the consignor who removed inputs under challan and availed CENVAT remains liable for duty; if processed goods are sold at the job-worker's premises or from another place, duty is payable by the job-worker on the transaction value at which the consignor sells; otherwise duty is payable on the value of goods removed by the job-worker including cost of free materials, with valuation by cost of production and CAS-4 certification where applicable.